FIRST BERLIN Equity Research Almonty Industries Inc. RATING Canada / Mining Toronto Annual Report PRICE TARGET CAD 1.10 Bloomberg: AII CN Return Potential 93.0% ISIN: CA0203981034 Risk Rating High PROFITS AND CASHFLOW LIFTING OFF AS UPSWING TAKES HOLD Simon Scholes, Tel. +49 (0)30-80 96 93 94 12 Al m BUY Almonty s annual report for the year to end 30 September showed a 53.6% rise in EBITDA from mining operations to CAD6.7m (2015/16: CAD4.3m; FBe: CAD5.9m) as higher prices for tungsten concentrate (we estimate that Almonty secured an increase of ca. 23%) outweighed both a 15.9% decline in volume and higher unit costs due to a decline in the average grade of ore processed. For 2017/18, we model a 33% increase in shipments of WO 3 to 196k metric tonne units (2016/17: 148k MTU), a 33% increase in the average price per MTU to USD250 (2016/17: USD188), as well as declining all-in cash operating costs/mtu as the grades of ore mined at Los Santos and Panasqueira return to normalised levels. We expect these drivers to effect a turnaround in operating cashflow to CAD15.7m in 2017/18E (2016/17:CAD-2.9m). Equally important to our valuation is our expectation of the near term financing of the Sangdong project in South Korea, which accounts for over half of our enterprise valuation of Almonty. The current global economic upswing is creating increasing demand for tungsten. Meanwhile China, which accounts for 80% of worldwide primary tungsten production, is reducing exports of the upstream commodity, tungsten concentrate (Almonty s product). Almonty s customers, who as suppliers of downstream tungsten product are reliant on concentrate, are concerned to reduce their dependence on Chinese supply. The development of Sangdong, which is one of the largest resources in the world at 25.9m MTU WO 3 in situ, and whose average grade of 0.49% is twice the average of western/chinese mines, is likely to be part of the solution to this problem. Almonty is negotiating with banks and offtake partners and we continue to expect a deal in the near term. We maintain our Buy recommendation and price target of CAD1.10. COMPANY PROFILE Almonty is a turnaround investor-operator specialising in acquiring distressed and underperforming operations and assets in tungsten markets. MARKET DATA As of 09 Feb 2018 Closing Price CAD 0.57 Shares outstanding 175.50m Market Capitalisation CAD 100.04m 52-week Range CAD 0.20 / 0.67 Avg. Volume (12 Months) 43,866 Multiples 2016/17 2017/18E 2018/19E P/E n.a. 12.6 6.9 EV/Sales 3.8 2.4 2.3 EV/EBIT n.a. 15.3 8.1 Div. Yield 0.0% 0.0% 0.0% STOCK OVERVIEW 0.78 0.68 0.58 8105 7105 2016/17 EBITDA from mining up 53.6% Full year 2016/17 revenues climbed 4.6% to CAD39.0m (2015/16: CAD37.3m; FBe CAD41.0m). (p.t.o.) 0.48 0.38 0.28 6105 5105 0.18 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Almonty Industries inc. S&P/TSX Composite Diversified Metals + Mining 4105 FINANCIAL HISTORY & PROJECTIONS 2014/15 2015/16 2016/17 2017/18E 2018/19E 2019/20E Revenue (CAD m) 36.14 37.31 39.02 62.66 65.01 83.88 Y-o-y growth 23.7% 3.2% 4.6% 60.6% 3.7% 29.0% EBIT (CAD m) -18.19-18.17-10.07 9.68 18.34 22.35 EBIT margin -50.3% -48.7% -25.8% 15.4% 28.2% 26.6% Net income (CAD m) -19.55-21.18-8.12 7.92 14.44 18.38 EPS (diluted) (CAD) -0.38-0.22-0.07 0.05 0.08 0.10 DPS (CAD) 0.00 0.00 0.00 0.00 0.00 0.00 FCF (CADm) -11.98-15.48-13.83 6.05 10.60 21.06 Net gearing 90.1% 155.8% 105.9% 68.9% 39.8% 8.4% Liquid assets (CAD m) 0.87 4.22 4.47 3.63 2.65 6.20 RISKS Risks are a renewed turndown in tungsten commodity prices and failure to secure financing for the strategically important Sangdong tungsten project. COMPANY DATA As of 30 Sep 2017 Liquid Assets CAD 4.47m Current Assets CAD 15.82m Intangible Assets CAD 0.00m Total Assets CAD 160.15m Current Liabilities CAD 47.37m Shareholders Equity CAD 45.63m SHAREHOLDERS Lewis Black/Almonty Partners LLC 20.2% Global Tungsten & Powders Corp. 15.7% Deutsche Rohstoff AG 13.2% J.P. Morgan Chase & Co. 8.9% Free float and other 42.0% Analyst: Simon Scholes, Tel. +49 (0)30-80 96 93 94
EBITDA from mining operations climbed 53.6% to CAD6.7m (2015/16: CAD4.3m; FBe 5.9m) while the net loss narrowed to CAD8.2m (2015/16: a loss of CAD21.2m; FBe: a loss of CAD8.5m). Figure 1 below shows 2016/17 results versus our forecasts. Figure 1: 2016/17 results versus our forecasts CAD 000 2016/17A 2016/17E vs. 2015/16A vs. 2016/17E 2015/16A Revenue 39,018 41,015-4.9% 37,310 4.6% Production costs 32,349 35,145 32,969 EBITDA from mining operations 6,669 5,869 13.6% 4,341 53.6% Impairment loss 0 0 5,345 Depreciation and amortisation 6,400 5,843 8,200 Result of mining ops. 269 26 919.3% -9,204 n.a. General and administrative 10,336 6,090 8,962 Operating income (EBIT) -10,067-6,064 n.a. -18,166 n.a. Net interest -2,436-2,439-2,709 Gain on debt settlement 3,015 0 0 Foreign exchange gain 1,368 0 360 Pre-tax income (EBT) -8,120-8,503 n.a. -20,515 n.a. Income taxes 122 0 660 Minority interests 0 0 0 Net income / loss -8,242-8,503 n.a. -21,175 n.a. EPS (CAD) -0.07-0.07 n.a. -0.22 n.a. Source: Almonty, First Berlin Equity Research estimates Revenues rose because the impact of higher commodity prices outweighed lower shipments of tungsten concentrate. The price of the most widely traded tungsten commodity - tungsten ammonium paratungstate (tungsten APT) averaged USD220/MTU in 2016/17 (2015/16: USD184/MTU). The product supplied by Almonty is tungsten concentrate for which the industry standard discount to tungsten APT is 22%. With effect from 1 January 2017, the price for 100% of the production at Panasqueira was fixed at USD210 per MTU WO 3 for calendar 2017 (equivalent to a tungsten APT price of USD269). In addition, from 1 February 2017 Almonty entered into a one year contract for Los Santos under which 80% of production was fixed at USD192.5 per MTU WO 3 (equivalent to a tungsten APT price of USD247). Almonty was able to secure a premium to the standard concentrate price level due to restrictions in Chinese exports relating specifically to concentrate. During autumn 2017, following a further rise in the tungsten APT price, management fixed ca. 45% of group calendar 2018 production at a tungsten APT-equivalent price of USD350 per MTU - a 17-20% premium to the then tungsten APT spot price of USD291-300. Tungsten APT is currently trading at USD325/MTU. As figure 2 below shows, shipments of WO 3 declined by 27.8k MTU or 15.9% in 2016/17 to 147.5 MTU (2015/16: 175.3k MTU). Wolfram Camp (Australia) was put on care and maintenance in late 2015/early 2016 due to tungsten price weakness. Shipments from Los Santos declined because for most of the financial year the mine was working through below average grade ore from a new pit opened in Q1 2016/17. The grades of ore mined at Los Santos and Panasqueira averaged 0.23% and 0.12% respectively during FY 2016/17. The normalised remaining life-of-mine grades at Los Santos and Panasqueira are 0.30% and 0.185% respectively. Figure 2: 2016/17 WO 3 shipments (MTU) 2016/17A 2016/17E vs. 2015/16 vs. 2016/17E 2015/16A Los Santos 66,698 69,936-4.6% 94,201-29.2% Panasqueira 80,757 89,996-10.3% 71,787 12.5% Wolfram Camp 0 0 9,316-100.0% Total 147,455 159,932-7.8% 175,304-15.9% Source: Almonty 2016/17 revenue was 4.9% below our forecast mainly because full year shipments of WO 3 from Panasqueira came in at 80.8k MTU compared with our forecast of 90.0k MTU. Shipments from Los Santos of 66.7k MTU were also below our forecast of 69.9k MTU. The lower revenue figure meant that production costs were also below our estimate and so the result from mining operations at CAD0.3m was close to our breakeven forecast. Page 2/10
We had assumed the inclusion of gains on debt settlement of CAD3.0m in operating profit and so FY EBIT at CAD-10.1m (FY 2015/16: CAD-18.2m) was below our forecast of CAD-6.1m. The largest element in the CAD3.0m gain on debt settlement is CAD2.3m stemming from the debt equity swap with Global Tungsten & Powders (GTP). The CAD3.0m gain also included gains on debt settlements with vendors of CAD1.3m. Meanwhile, the settlement of a convertible debenture agreement with DRAG (a shareholder) resulted in a loss of CAD0.5m. After gains on debt settlement of CAD3.0m and foreign exchange gains of CAD1.4m, net profit at CAD-8.2m was close to our forecast of CAD-8.5m. FINANCIAL POSITION During the 2016/17 financial year, Almonty made very good progress in restructuring and deleveraging its balance sheet. Measures implemented included: the termination of debt and accrued interest of USD7.0m with its customer, Global Tungsten and Powders Corp. (GTP) against the issue to GTP of 27,562,500 common shares at CAD0.3325 and a debenture of USD172,772 convertible into Almonty shares at CAD0.265. the maturity extension from March 2017 to March 2019 of a CAD6m convertible promissory note held by DRAG. the mid-august subscription by Almonty s CEO, Lewis Black, of 21,175,000 new shares at CAD0.30 per share generating proceeds of CAD6.4m. the conversion of a CAD4m convertible debenture, held by DRAG and due on 15 September 2017, into common shares at CAD0.60. Net gearing was 106% at the end of September (2015/16: 156%). In mid-october 2017 Almonty announced that it had closed a private placement of 5m shares at CAD0.54 with JP Morgan Asset Management raising gross proceeds of CAD2.7m. In early February 2018 Almonty announced the restructuring of promissory notes of CAD5.9m issued to Dundee Resources into a convertible debenture. The convertible debenture has a coupon of 6.0% and matures on 30 January 2020. The conversion price is CAD1.00. Although Q4 shipments from both Los Santos and Panasqueira were below our forecasts, following discussions with management, we continue to expect the higher tungsten price to induce a rise in tungsten trioxide shipments to 196k MTU this year. Our forecasts for 2017/18 and subsequent financial years are largely unchanged on our last note of 11 December 2017 VALUATION Our sum of the parts valuation model is also largely unchanged. Figure 3: Sum-of-the-parts valuation USD 000's Old New % Delta Panasqueira 61,424 62,443 1.7% Los Santos 25,199 25,617 1.7% Valtreixal 15,273 15,527 1.7% Wolfram Camp 680 691 1.7% Sangdong 104,580 100,754-3.7% Less: PV parent company costs 10,118 10,118 0.0% Total enterprise value 197,038 194,914-1.1% Total enterprise value (CAD 000's) 253,155 250,425-1.1% Less: proforma net debt (CAD 000's) 38,130 36,430-4.5% Fair equity value (CAD 000's) 215,025 213,996-0.5% Proforma no. shares (000's) 188,208 194,116 3.1% Fair equity value per share (CAD) 1.14 1.10-3.5% Source: First Berlin Equity Research estimates The capital required to bring Almonty s most important project at Sangdong in South Korea into production is likely to amount to USD90-100m. Page 3/10
The current global economic upswing is creating increasing demand for tungsten. At the same time China, which accounts for 80% of worldwide primary tungsten production, is reducing exports of the upstream commodity, tungsten concentrate, which is also supplied by Almonty. Against this background, Almonty s customers, who as suppliers of downstream tungsten product are reliant on concentrate, are increasingly concerned to reduce their dependence on Chinese supply. The development of Sangdong, which is one of the largest resources in the world at 25.9m MTU WO3 in situ and whose average grade of 0.49% is twice the average of western/chinese mines, is likely to be part of the solution to this problem. Almonty is negotiating with banks and offtake partners, and we continue to expect a deal in the near term. Pending the annoucement of financing, we continue to value Sangdong on the basis of the valuation accorded by the market to peers in situ resources. The Sangdong peer group comparison is shown in figure 4. Figure 4: Sangdong peer group comparison EV m CAD Total MTU W03 in situ (000s) EV/MTU W03 in situ (CAD) Blackheath Resources 2.3 1,228 1.85 Ormonde Mining* 21.5 2,174 9.89 Thor Mining 45.3 4,597 9.86 Tungsten Mining 108.7 15,433 7.05 Sangdong 129.4 25,890 5.00 *in situ resource shown is 30% of total in line with Ormonde s 30% stake in the Barruecopardo project Blackheath Resources is currently focused on exploration work rather than project financing. Thor Mining published a feasibility study for its wholly-owned Molyhill tungsten project in Australia in early 2015. Project development cost is estimated at USD48m. The company has demonstrated the production of tungsten concentrate from the Molyhill project and also holds a Memorandum of Understanding in respect of concentrate sales with a major international downstream processor. However, the company has yet to conclude financing for the project. Tungsten Mining plans initial small scale production at its Australian Mount Mulgine project by the end of 2018. Financing for larger scale production has still to be negotiated. Among the peers shown in figure 4, Ormonde Mining has the highest enterprise value/mtu W03 at CAD9.89. Ormonde is the only one of the companies in the peer group to have achieved financing for a project. The funding for the Barruecopardo tungsten project in Spain was agreed with Oaktree Capital in 2015. Ormonde retains 30% in the project while Oaktree holds 70%. Production is scheduled to start in calendar Q4 2018. We continue to value each MTU of resource at Sangdong at CAD5.00 i.e. at a 49% discount to Ormonde. This implies an overall valuation for Almonty of CAD1.10 per share. We maintain our Buy recommendation and price target of CAD1.10. Page 4/10
INCOME STATEMENT All figures in CAD '000 2014/15A 2015/16A 2016/17A 2017/18E 2018/19E 2019/20E Revenue 36,142 37,310 39,018 62,661 65,008 83,880 Production costs 37,743 32,969 32,349 40,256 34,417 47,827 EBITDA from mining operations -1,601 4,341 6,669 22,405 30,591 36,053 Impairment loss 1,708 5,345 0 0 0 0 Depreciation and amortisation 8,545 8,200 6,400 5,100 4,400 5,600 Result from mining operations -11,854-9,204 269 17,305 26,191 30,453 General and administrative 6,339 8,962 10,336 7,630 7,850 8,100 Operating income (EBIT) -18,193-18,166-10,067 9,675 18,341 22,353 Interest expense 1,404 2,709 2,436 1,751 1,357 724 Gains on debt settlements 0 0 3,015 0 0 0 Foreign exchange (gain) loss 1,313-360 -1,368 0 0 0 Pre-tax income (EBT) -20,910-20,515-8,120 7,924 16,984 21,629 Income taxes -618 660 0 0 2,548 3,244 Minority interests -747 0 0 0 0 0 Net income / loss -19,545-21,175-8,120 7,924 14,437 18,385 Diluted EPS (in ) -0.38-0.22-0.07 0.05 0.08 0.10 EBITDA -9,648-9,966-3,667 14,775 22,741 27,953 Ratios EBITDA margin on revenues -26.7% -26.7% -9.4% 23.6% 35.0% 33.3% EBIT margin on revenues -50.3% -48.7% -25.8% 15.4% 28.2% 26.6% Net margin on revenues -54.1% -56.8% -20.8% 12.6% 22.2% 21.9% Tax rate n.m. n.m. n.m. n.m. 15.0% 15.0% Expenses as % of revenues Production costs 104.4% 88.4% 82.9% 64.2% 52.9% 57.0% Impairment loss 4.7% 14.3% 0.0% 0.0% 0.0% 0.0% General and administrative 17.5% 24.0% 26.5% 12.2% 12.1% 9.7% Y-Y Growth Revenues 23.7% 3.2% 4.6% 60.6% 3.7% 29.0% Operating income n.a. n.m. n.m. n.m. 89.6% 21.9% Net income/ loss n.a. n.m. n.m. n.m. 82.2% 27.3% Page 5/10
BALANCE SHEET All figures in CAD '000 2014/15A 2015/16A 2016/17A 2017/18E 2018/19E 2019/20E Assets Current assets, total 8,543 17,800 15,823 26,501 26,377 36,815 Cash and cash equivalents 866 4,215 4,473 3,630 2,649 6,199 Trade receivables 840 707 1,420 1,253 1,300 1,678 Sales tax receivable 2,149 1,439 1,372 2,444 2,535 3,271 Inventories 4,076 10,720 7,274 17,984 18,657 24,073 Other current assets 612 719 1,284 1,191 1,235 1,594 Non-current assets, total 108,984 149,966 144,328 150,006 155,229 157,936 Mining assets 88,136 125,928 115,721 120,309 124,816 127,497 Tailings inventory 15,410 18,665 23,492 23,492 23,492 23,492 Deferred tax assets 4,036 2,859 2,864 4,198 5,201 4,194 Restricted cash 1,223 1,336 1,300 1,055 770 1,801 Other assets 179 1,178 951 951 951 951 Total assets 117,527 167,766 160,151 176,507 181,606 194,750 Shareholders' equity & debt Current liabilities, total 32,578 55,849 47,374 57,663 54,594 60,462 Bank indebtedness 1,794 4,456 9,447 7,666 5,595 2,717 Accounts payable and accrued liabilities 15,453 21,799 22,479 36,594 37,965 48,986 Deferred revenue 1,697 2,422 3,951 4,073 4,226 5,452 Current portion of long term debt 13,634 27,172 11,497 9,330 6,809 3,307 Long-term liabilities, total 35,947 76,348 67,152 61,894 55,030 44,425 Long-term debt 30,801 29,325 33,162 26,911 19,640 9,538 Restoration and other provisions 3,228 45,548 32,790 32,790 32,790 32,790 Deferred tax liabilities 1,918 1,475 1,200 2,193 2,600 2,097 Minority interests 0 0 0 0 0 0 Shareholders' equity 49,002 35,569 45,625 56,950 71,982 89,863 Total consolidated equity and debt 117,527 167,766 160,151 176,507 181,606 194,750 Ratios Current ratio (x) 0.26 0.32 0.33 0.46 0.48 0.61 Quick ratio (x) 0.14 0.13 0.18 0.15 0.14 0.21 Net debt 44.14 55.40 48.33 39.22 28.62 7.56 Net gearing 90.1% 155.8% 105.9% 68.9% 39.8% 8.4% Book value per share (in ) 0.57 0.32 0.27 0.33 0.41 0.51 Return on equity (ROE) 0.0% -50.1% -20.0% 15.5% 22.4% 22.7% Page 6/10
CASH FLOW STATEMENT All figures in CAD '000 2014/15A 2015/16A 2016/17A 2017/18E 2018/19E 2019/20E Net profit before minorities -20,292-21,175-8,242 7,924 14,437 18,385 Share-based compensation 379 170 472 0 0 0 Depreciation and amortisation 8,545 8,200 6,400 5,100 4,400 5,600 Interest expense 1,404 2,709 2,436 0 0 0 Income tax expenses 618 660 122 0 0 0 Impairment of mine asset 1,708 5,345 0 0 0 0 Inventory impairment charges 7,408 6,301 0 0 0 0 Gain on debt settlement 0 0-3,015 0 0 0 Unrealised foreign exchange (gain) loss 2,138-390 -1,320 0 0 0 Other non-cash charges 111 116 104 0 0 0 Interest and taxes paid -2,033-1,125-920 0 0 0 Net change in non-cash working capital 4877-1,892 4,620 2,716 667 5,360 Change in tailings inventory -4065-3,138-3,545 0 0 0 Operating cash flow 798-4,219-2,888 15,740 19,503 29,344 Additions to mining assets -12,783-11,259-10,945-9,688-8,906-8,282 Free cash flow -11,985-15,478-13,833 6,051 10,597 21,063 Acquistion of Panasqueira, net of cash acquired 0-833 0 0 0 0 Acquistion of Woulfe, net of cash acquired -2,275 0 0 0 0 0 Other investments -1,058-938 266 245 285-1,032 Investment cash flow -16,116-13,030-10,679-9,443-8,621-9,313 Debt financing, net 924 10,890 7,581-10,200-11,863-16,482 Equity financing -197 7,036 6,353 3,060 0 0 Dividends paid 0 0 0 0 0 0 Other financing 0 0 0 0 0 0 Financing cash flow 727 17,926 13,934-7,140-11,863-16,482 FOREX & other effects 610 19-109 0 0 0 Net cash flows -13,981 696 258-843 -981 3,549 Cash, start of the year 14,847 866 4,215 4,473 3,630 2,649 Cash, end of the year 866 4,215 4,473 3,630 2,649 6,199 EBITDA/share (in CAD) -0.19-0.10-0.03 0.08 0.13 0.16 Y-Y Growth Operating cash flow n.a. n.m. n.m. n.m. 23.9% 50.5% Free cash flow n.a. n.m. n.m. n.m. 75.1% 98.8% EBITDA/share n.a. n.m. n.m. n.m. 53.7% 22.9% Page 7/10
FIRST BERLIN Equity Research FIRST BERLIN RECOMMENDATION & PRICE TARGET HISTORY Report No.: Initial Report Date of publication Previous day closing price Recommendation Price target 6 June 2017 CAD0.25 Buy CAD0.60 2 6 September 2017 CAD0.51 Buy CAD0.80 3 11 December 2017 CAD0.50 Buy CAD1.10 4 Today CAD0.57 Buy CAD1.10 Authored by: Simon Scholes, Analyst Company responsible for preparation: First Berlin Equity Research GmbH Mohrenstraße 34 10117 Berlin Tel. +49 (0)30-80 96 93 94 Fax +49 (0)30-80 93 96 87 info@firstberlin.com www.firstberlin.com Person responsible for forwarding or distributing this financial analysis: Martin Bailey Copyright 2018 First Berlin Equity Research GmbH No part of this financial analysis may be copied, photocopied, duplicated or distributed in any form or media whatsoever without prior written permission from First Berlin Equity Research GmbH. First Berlin Equity Research GmbH shall be identified as the source in the case of quotations. Further information is available on request. INFORMATION PURSUANT TO SECTION 34B OF THE GERMAN SECURITIES TRADING ACT [WPHG], TO REGULATION (EU) NO 596/2014 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF APRIL 16, 2014, ON MARKET ABUSE (MARKET ABUSE REGULATION) AND TO THE GERMAN ORDINANCE ON THE ANALYSIS OF FINANCIAL INSTRUMENTS [FINANV] First Berlin Equity Research GmbH (hereinafter referred to as: First Berlin ) prepares financial analyses while taking the relevant regulatory provisions, in particular the German Securities Trading Act [WpHG], Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014, on market abuse (market abuse regulation) and the German Ordinance on the Analysis of Financial Instruments [FinAnV] into consideration. In the following First Berlin provides investors with information about the statutory provisions that are to be observed in the preparation of financial analyses. First Berlin F.S.B. 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The remuneration of the author of the financial analysis stands in no direct or indirect connection with the recommendations or opinions represented in the financial analysis. Furthermore, the remuneration of the author of the financial analysis is neither coupled directly to financial transactions nor to stock exchange trading volume or asset management fees. If despite these measures one or more of the aforementioned conflicts of interest cannot be avoided on the part of the author or First Berlin, then reference shall be made to such conflict of interest. INFORMATION PURSUANT TO SECTION 64 OF THE GERMAN SECURITIES TRADING ACT [WPHG] (2ND FIMANOG) OF 23 JUNE 2017, DIRECTIVE 2014/65/EU OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF 15 MAY 2014 ON MARKETS IN FINANCIAL INSTRUMENTS AND AMENDING DIRECTIVE 2002/92/EC AND DIRECTIVE 2011/61/EU, ACCOMPANIED BY THE MARKETS IN FINANCIAL INSTRUMENTS REGULATION (MIFIR, REG. EU NO. 600/2014) First Berlin notes that is has concluded a contract with the issuer to prepare financial analyses and is paid for that by the issuer. First Berlin makes the financial analysis simultaneously available for all interested security financial services companies. First Berlin thus believes that it fulfils the requirements of section 64 WpHG for minor non-monetary benefits. Page 8/10
FIRST BERLIN Equity Research PRICE TARGET DATES Unless otherwise indicated, current prices refer to the closing prices of the previous trading day. AGREEMENT WITH THE ANALYSED COMPANY AND MAINTENANCE OF OBJECTIVITY The present financial analysis is based on the author s own knowledge and research. The author prepared this study without any direct or indirect influence exerted on the part of the analysed company. Parts of the financial analysis were possibly provided to the analysed company prior to publication in order to avoid inaccuracies in the representation of facts. However, no substantial changes were made at the request of the analysed company following any such provision. ASSET VALUATION SYSTEM First Berlin s system for asset valuation is divided into an asset recommendation and a risk assessment. ASSET RECOMMENDATION The recommendations determined in accordance with the share price trend anticipated by First Berlin in the respectively indicated investment period are as follows: STRONG BUY: An expected favourable price trend of more than 50% combined with sizeable confidence in the quality and forecast security of management. BUY: An expected favourable price trend of more than 25% percent. ADD: An expected favourable price trend of between 0% and 25%. REDUCE: An expected negative price trend of between 0% and -15%. SELL: An expected negative price trend of more than -15%. RISK ASSESSMENT The First Berlin categories for risk assessment are low, average, high and speculative. They are determined by ten factors: Corporate governance, quality of earnings, management strength, balance sheet and financial risk, competitive position, standard of financial disclosure, regulatory and political uncertainty, strength of brandname, market capitalisation and free float. 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